ANY ATTEMPT by the Government to defer “painful decisions” to fix the public finances beyond the current target of 2013 would not be a “healthy outcome”, according to the authors of an economic report published by accountancy firm, Ernst & Young (E&Y).
Neil Gibson, special adviser to the firm’s Economic Eye forecasting team, said that extending the recovery deadline to 2017, as proposed by the trade unions, would be welcome but it should not prevent attempts to “get the public finances back on track”.
“If the impact of an extended deadline was to defer the debate, then that wouldn’t be a healthy outcome,” said Mr Gibson, a director of consultancy Oxford Economics.
He said that if that was the route chosen by the Government, it would “run the risk of what the UK economy has done – try to hold off for fast global economic growth to return and bring you the tax boom which means you don’t have the same scale of problem”.
Ireland would run a 5 per cent deficit by 2013 based on E&Y’s “policy neutral model”, he said.
The Government plans to bring the country’s deficit below the 3 per cent of gross domestic product (GDP) limit set by the EU Stability and Growth Pact by 2013 through a series of severe budgets over the coming years, starting with €4 billion of tax increases and expenditure cuts next month.
The unions have called on the Government to ease spending cutbacks by extending the duration of the economic recovery plan.
Mr Gibson warned that industrial unrest would send out a negative perception internationally. “A mass set of strikes will not sit very well on the world stage,” he said.
There was a “fragile optimism” for the all-island economy, which Mr Gibson expects to shrink by 6.7 per cent this year, compared with a 7.8 per cent forecast by EY’s Economic Eye last summer. The improved forecast was due to higher corporation tax returns and better exports.
“Unemployment, falling tax receipts, rising benefit costs, unsustainable financial commitments and two sets of public finances in disarray mean we are in for a very tough 12 months,” said Mr Gibson.
E&Y expects the economy in the Republic to shrink by 7.3 per cent this year and by 0.6 per cent in 2010 before returning to a higher economic growth than either Northern Ireland or the UK between 2011 and 2013.
Mr Gibson warned that corporation tax receipts will be lower in 2010 due to a lag in the reporting of weaker performances this year.
Unemployment is expected to peak at 13 per cent in 2010 before falling below 10 per cent again in 2013.
